Distribution logistics or physical distribution is the process through which a firm organizes the physical flow of goods, the right location and at the right time so as to achieve maximum satisfaction for the middlemen and the ultimate customers and thus achieve the firm’s sales and profit objectives.
The distribution system performs two functions: it has to generate demand for the product and, secondly, it has to make sure that demand thus created is matched by adequate and timely supply. While all the members of the channel will have to take part in the dual functions the exporter has the primary responsibility. To achieve this objective, the exporter will require a logistics plan. A logistics plan can be drawn by considering the following points:
(a) What are the alternative modes of transport, viz., rail air or ship, available for transporting the goods from the point of manufacturer to the point of purchase?
(b) What is the mode which is optimal from the standpoint of total distribution costs?
(c) Is there any need for warehousing arrangements, keeping in view the product and marketing characteristics?
In fact, the first two points are important enough to be considered even at the time of the selection of export markets. The non-availability of the required type of transporting facility can weigh all other marketing advantages that an exporter may have. For example there may be a good market for cut flowers in a foreign country, but unless the importing country is connected with the exporting country by airlines having daily flights, it will not be possible to exploit the demand. The perishable nature of cut flowers demands that these must reach the consumers within the shortest possible time. Similarly, for the export of fruits, vegetables and marine products, shipping space with refrigeration facility is required. Therefore unless the potential Markets are served by shipping lines with similar facility exports and such items cannot be undertaken.
There is another angle to the problem of logistics planning. The Exporting country may not be connected with the importing country directly by shipping or air services. In such a situation, transportation of goods will involve transshipment from an intermediate point. Transshipment apart from involving higher costs and more uncertainties regarding the safety of the cargo also involves delays. Since delivery of the goods as agreed upon is one basic condition on which success in export depends, the delay if any may become crucial for logistics planning. Export shipment may have to be planned much in advance to coordinate the schedule of the on going vessel from there to the port of shipment to the transshipment point and from there to the port of final delivery.
To consider the second aspect namely selection of the appropriate mode of transport, it is necessary first to identify the elements that taken together constitute the total distribution costs. In a study carried out in the United States, it is found that the total distribution costs are allocated over the various components in the following proportion:
Receiving and shipping 7.8%
Inventory carrying costs 17.4%
Order Processing 5.5%
The promotion obviously will vary from product to product, but all the cost components, with the sole exception of warehousing will have to be considered for determining the total distribution costs of each and every product. It is therefore obvious that the selection of the mode of transport cannot be taken only on the basis of the freight elements, which at best will depend on the total incidence of costs for alternative modes of transport.
Surface Vs Air Transport:
The choice regarding modes of transport in relation to export marketing revolves around the appropriateness of transporting goods by ship or by air. Assuming that other types of transport systems are available to the shipper, the choice should depend on the estimates he makes as to the total costs of distribution by ship and by air. It s found that the important elements of costs behave in the following fashion for ocean and air transport:
Air transport Surface Transport
Freight High Low
Depot costs Low High
Fixed inventory Low High
Packaging Low High
Insurance Low High
From above statement it is seen that only freight element is higher for air transport but for all other cost elements, it has an edge over surface transport.